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Republic of the Philippines


SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 186312 June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,


vs.
SUN HOLIDAYS, INC., Respondent.

DECISION

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25, 20011 against Sun Holidays, Inc.
(respondent) with the Regional Trial Court (RTC) of Pasig City for damages arising from the death of their son
Ruelito C. Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the boat M/B Coco Beach III
that capsized en route to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco
Beach Island Resort (Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to 11, 2000 was by virtue of a tour
package-contract with respondent that included transportation to and from the Resort and the point of departure in
Batangas.

Miguel C. Matute (Matute),2 a scuba diving instructor and one of the survivors, gave his account of the incident that
led to the filing of the complaint as follows:

Matute stayed at the Resort from September 8 to 11, 2000. He was originally scheduled to leave the Resort in the
afternoon of September 10, 2000, but was advised to stay for another night because of strong winds and heavy
rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests including petitioners’ son and his
wife trekked to the other side of the Coco Beach mountain that was sheltered from the wind where they boarded
M/B Coco Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from Puerto Galera and into the open seas,
the rain and wind got stronger, causing the boat to tilt from side to side and the captain to step forward to the front,
leaving the wheel to one of the crew members.

The waves got more unwieldy. After getting hit by two big waves which came one after the other, M/B Coco Beach
III capsized putting all passengers underwater.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon seeing the captain, Matute
and the other passengers who reached the surface asked him what they could do to save the people who were still
trapped under the boat. The captain replied "Iligtas niyo na lang ang sarili niyo" (Just save yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto Galera passed by the
capsized M/B Coco Beach III. Boarded on those two boats were 22 persons, consisting of 18 passengers and four
crew members, who were brought to Pisa Island. Eight passengers, including petitioners’ son and his wife, died
during the incident.

At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for Mitsui Engineering &
Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of $900.3

Petitioners, by letter of October 26, 2000,4 demanded indemnification from respondent for the death of their son in
the amount of at least ₱4,000,000.

Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the incident which it
considered to be a fortuitous event. It nevertheless offered, as an act of commiseration, the amount of ₱10,000 to
petitioners upon their signing of a waiver.

As petitioners declined respondent’s offer, they filed the Complaint, as earlier reflected, alleging that respondent, as
a common carrier, was guilty of negligence in allowing M/B Coco Beach III to sail notwithstanding storm warning
bulletins issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) as
early as 5:00 a.m. of September 11, 2000.6

In its Answer,7 respondent denied being a common carrier, alleging that its boats are not available to the general
public as they only ferry Resort guests and crew members. Nonetheless, it claimed that it exercised the utmost
diligence in ensuring the safety of its passengers; contrary to petitioners’ allegation, there was no storm on
September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B Coco Beach III was not filled to
capacity and had sufficient life jackets for its passengers. By way of Counterclaim, respondent alleged that it is
entitled to an award for attorney’s fees and litigation expenses amounting to not less than ₱300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort customarily requires four conditions to be
met before a boat is allowed to sail, to wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there
is clearance from the captain and (4) there is clearance from the Resort’s assistant manager.8 He added that M/B
Coco Beach III met all four conditions on September 11, 2000,9 but a subasco or squall, characterized by strong
winds and big waves, suddenly occurred, causing the boat to capsize.10

By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners’ Complaint and
respondent’s Counterclaim.

Petitioners’ Motion for Reconsideration having been denied by Order dated September 2, 2005,12 they appealed to
the Court of Appeals.

By Decision of August 19, 2008,13 the appellate court denied petitioners’ appeal, holding, among other things, that
the trial court correctly ruled that respondent is a private carrier which is only required to observe ordinary diligence;

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that respondent in fact observed extraordinary diligence in transporting its guests on board M/B Coco Beach III; and
that the proximate cause of the incident was a squall, a fortuitous event.

Petitioners’ Motion for Reconsideration having been denied by Resolution dated January 16, 2009,14 they filed the
present Petition for Review.15

Petitioners maintain the position they took before the trial court, adding that respondent is a common carrier since
by its tour package, the transporting of its guests is an integral part of its resort business. They inform that another
division of the appellate court in fact held respondent liable for damages to the other survivors of the incident.

Upon the other hand, respondent contends that petitioners failed to present evidence to prove that it is a common
carrier; that the Resort’s ferry services for guests cannot be considered as ancillary to its business as no income is
derived therefrom; that it exercised extraordinary diligence as shown by the conditions it had imposed before
allowing M/B Coco Beach III to sail; that the incident was caused by a fortuitous event without any contributory
negligence on its part; and that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.16

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals17 in characterizing respondent as a common carrier.

The Civil Code defines "common carriers" in the following terms:

Article 1732. Common carriers are persons, corporations, firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land, water, or air for compensation, offering their services to the
public.

The above article makes no distinction between one whose principal business activity is the carrying of persons or
goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as "a sideline"). Article
1732 also carefully avoids making any distinction between a person or enterprise offering transportation service on a
regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither
does Article 1732 distinguish between a carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business only from a narrow segment of the
general population. We think that Article 1733 deliberately refrained from making such distinctions.

So understood, the concept of "common carrier" under Article 1732 may be seen to coincide neatly with the notion
of "public service," under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially
supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public
Service Act, "public service" includes:

. . . every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-
refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other
similar public services . . .18 (emphasis and underscoring supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined with its main business as to be properly
considered ancillary thereto. The constancy of respondent’s ferry services in its resort operations is underscored by
its having its own Coco Beach boats. And the tour packages it offers, which include the ferry services, may be
availed of by anyone who can afford to pay the same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is of no moment. It would be imprudent
to suppose that it provides said services at a loss. The Court is aware of the practice of beach resort operators
offering tour packages to factor the transportation fee in arriving at the tour package price. That guests who opt not
to avail of respondent’s ferry services pay the same amount is likewise inconsequential. These guests may only be
deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining "common carriers" has deliberately refrained from
making distinctions on whether the carrying of persons or goods is the carrier’s principal business, whether it is
offered on a regular basis, or whether it is offered to the general public. The intent of the law is thus to not consider
such distinctions. Otherwise, there is no telling how many other distinctions may be concocted by unscrupulous
businessmen engaged in the carrying of persons or goods in order to avoid the legal obligations and liabilities of
common carriers.

Under the Civil Code, common carriers, from the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence for the safety of the passengers transported by them, according to all the
circumstances of each case.19 They are bound to carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances.20

When a passenger dies or is injured in the discharge of a contract of carriage, it is presumed that the common
carrier is at fault or negligent. In fact, there is even no need for the court to make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that
the carrier exercised extraordinary diligence.21

Respondent nevertheless harps on its strict compliance with the earlier mentioned conditions of voyage before it
allowed M/B Coco Beach III to sail on September 11, 2000. Respondent’s position does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and tropical cyclone warnings for
shipping on September 10 and 11, 2000 advising of tropical depressions in Northern Luzon which would also affect
the province of Mindoro.22 By the testimony of Dr. Frisco Nilo, supervising weather specialist of PAGASA, squalls
are to be expected under such weather condition.23

A very cautious person exercising the utmost diligence would thus not brave such stormy weather and put other
people’s lives at risk. The extraordinary diligence required of common carriers demands that they take care of the
goods or lives entrusted to their hands as if they were their own. This respondent failed to do.

Respondent’s insistence that the incident was caused by a fortuitous event does not impress either.

The elements of a "fortuitous event" are: (a) the cause of the unforeseen and unexpected occurrence, or the failure
of the debtors to comply with their obligations, must have been independent of human will; (b) the event that
constituted the caso fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the
occurrence must have been such as to render it impossible for the debtors to fulfill their obligation in a normal
manner; and (d) the obligor must have been free from any participation in the aggravation of the resulting injury to
the creditor.24

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To fully free a common carrier from any liability, the fortuitous event must have been the proximate and only cause
of the loss. And it should have exercised due diligence to prevent or minimize the loss before, during and after the
occurrence of the fortuitous event.25

Respondent cites the squall that occurred during the voyage as the fortuitous event that overturned M/B Coco
Beach III. As reflected above, however, the occurrence of squalls was expected under the weather condition of
September 11, 2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble before it capsized
and sank.26 The incident was, therefore, not completely free from human intervention.

The Court need not belabor how respondent’s evidence likewise fails to demonstrate that it exercised due diligence
to prevent or minimize the loss before, during and after the occurrence of the squall.

Article 176427 vis-à-vis Article 220628 of the Civil Code holds the common carrier in breach of its contract of
carriage that results in the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity for
loss of earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed at ₱50,000.29

As for damages representing unearned income, the formula for its computation is:

Net Earning Capacity = life expectancy x (gross annual income - reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 — age of deceased at the time of death]30

The first factor, i.e., life expectancy, is computed by applying the formula (2/3 x [80 — age at death]) adopted in the
American Expectancy Table of Mortality or the Actuarial of Combined Experience Table of Mortality.31

The second factor is computed by multiplying the life expectancy by the net earnings of the deceased, i.e., the total
earnings less expenses necessary in the creation of such earnings or income and less living and other incidental
expenses.32 The loss is not equivalent to the entire earnings of the deceased, but only such portion as he would
have used to support his dependents or heirs. Hence, to be deducted from his gross earnings are the necessary
expenses supposed to be used by the deceased for his own needs.33

In computing the third factor – necessary living expense, Smith Bell Dodwell Shipping Agency Corp. v. Borja34
teaches that when, as in this case, there is no showing that the living expenses constituted the smaller percentage
of the gross income, the living expenses are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life expectancy as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]


2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35

Documentary evidence shows that Ruelito was earning a basic monthly salary of $90035 which, when converted to
Philippine peso applying the annual average exchange rate of $1 = ₱44 in 2000,36 amounts to ₱39,600. Ruelito’s
net earning capacity is thus computed as follows:

Net Earning = life expectancy x (gross annual income - reasonable and necessary living
Capacity expenses).
= 35 x (₱475,200 - ₱237,600)
= 35 x (₱237,600)
Net Earning
= ₱8,316,000
Capacity

Respecting the award of moral damages, since respondent common carrier’s breach of contract of carriage resulted
in the death of petitioners’ son, following Article 1764 vis-à-vis Article 2206 of the Civil Code, petitioners are entitled
to moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence required of common carriers, it is
presumed to have acted recklessly, thus warranting the award too of exemplary damages, which are granted in
contractual obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.37

Under the circumstances, it is reasonable to award petitioners the amount of ₱100,000 as moral damages and
₱100,000 as exemplary damages.38 1avvphi1

Pursuant to Article 220839 of the Civil Code, attorney's fees may also be awarded where exemplary damages are
awarded. The Court finds that 10% of the total amount adjudged against respondent is reasonable for the purpose.

Finally, Eastern Shipping Lines, Inc. v. Court of Appeals40 teaches that when an obligation, regardless of its source,
i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for
payment of interest in the concept of actual and compensatory damages, subject to the following rules, to wit —

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit. (emphasis supplied).

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Since the amounts payable by respondent have been determined with certainty only in the present petition, the
interest due shall be computed upon the finality of this decision at the rate of 12% per annum until satisfaction, in
accordance with paragraph number 3 of the immediately cited guideline in Easter Shipping Lines, Inc.

WHEREFORE, the Court of Appeals Decision of August 19, 2008 is REVERSED and SET ASIDE. Judgment is
rendered in favor of petitioners ordering respondent to pay petitioners the following: (1) ₱50,000 as indemnity for the
death of Ruelito Cruz; (2) ₱8,316,000 as indemnity for Ruelito’s loss of earning capacity; (3) ₱100,000 as moral
damages; (4) ₱100,000 as exemplary damages; (5) 10% of the total amount adjudged against respondent as
attorneys fees; and (6) the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12% per annum computed from the
finality of this decision until full payment.

SO ORDERED.

CONCHITA CARPIO MORALES


Associate Justice
Chairperson

WE CONCUR:

ARTURO D. BRION LUCAS P. BERSAMIN


Associate Justice Associate Justice

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.


Associate Justice Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision had been
reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes
*
Additional member per Special Order No. 843 dated May 17, 2010.

1 Records, pp. 2-6.

2 TSN of September 12, 2002, pp. 2-22.

3 Vide TSN of May 2, 2002, pp. 5-7; records, p. 4.

4 Records, pp. 19-20.

5 Id. at 21-22.

6 Vide Complaint, supra note 1.

7 Records, pp. 28-35.

8 Vide TSN of February 4, 2003, pp. 6-7.

9 Id. at 8.

10 TSN of March 4, 2003, pp. 5-6.

11 Records, pp. 488-496.

12 Id. at 581-585.

13 Penned by Associate Justice Normandie B. Pizarro, with the concurrence of Associate Justices Edgardo P.
Cruz and Fernanda Lampas Peralta; CA rollo, pp. 135-147.

14 Id. at 190-191.

15 Rollo, pp. 18-31.

16 Vide Comment, id. at 60-81.

17 G.R. No. L-47822, December 22, 1988,168 SCRA 612.

18 Id. at 617-618.

19 Civil Code, Art. 1733.

20 Id., Art. 1755.

21 Diaz v. Court of Appeals, G.R. No. 149749, July 25, 2006, 496 SCRA 468, 472.

22 Vide records, pp. 268-276.

23 Vide TSN of December 13, 2001, pp. 3-19.

24 Lea Mer Industries, Inc. v. Malayan Insurance Co., Inc., G.R. No. 161745, September 30, 2005, 471 SCRA
698, 707-708.

25 Ibid.

26 Records, pp. 279-280.

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27 Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of
this Book concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the
breach of contract by a common carrier.
28 Art. 2206. The amount of damages for death caused by a crime or quasi-delict shall be at least three
thousand pesos, even though there may have been mitigating circumstances. In addition:

(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the indemnity
shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and awarded by
the court, unless the deceased on account of permanent physical disability not caused by the
defendant, had no earning capacity at the time of his death;

(2) If the deceased was obliged to give support according to the provisions of article 291, the recipient
who is not an heir called to the decedent's inheritance by the law of testate or intestate succession,
may demand support from the person causing the death, for a period not exceeding five years, the
exact duration to be fixed by the court;

(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand
moral damages for mental anguish by reason of the death of the deceased.

29 Tiu v. Arriesgado, G.R. No. 138060, September 1, 2004, 437 SCRA 426, 451-452.

30 Candano Shipping Lines, Inc. v. Sugata-on, G.R. No. 163212, March 13, 2007, 578 SCRA 221, 235.

31 Lambert v. Heirs of Ray Castillon, G.R. No. 160709, February 23, 2005, 452 SCRA 285, 294.

32 Ibid.

33 Magbanua v. Tabusares, Jr., G.R. No. 152134, June 4, 2004, 431 SCRA 99, 104.

34 G.R. No. 143008, June 10, 2002, 383 SCRA 341, 351.

35 Vide records, pp. 258-259.

36 For reference, vide Bangko Sentral ng Pilipinas Treasury Department Reference Exchange Rate
Bulletins at www.bsp.gov.ph/dbank_reports/ExchangeRates.
37 Vide Yobido v. Court of Appeals, 346 Phil. 1, 13 (1997).

38 Vide Victory Liner, Inc. v. Gammad, G.R. No. 159636, November 25, 2004, 444 SCRA 355, 370.

39 Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:

(1) When exemplary damages are awarded;


40 G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95–97.

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